I have heard more than once that performance ratings have no value-add and are a legacy of a bygone age with no place in the current work environment. It has certainly been the crux of many performance management stories in the media over the last 18 months, since a number of organisations have been vocal about the advantages of a rating-less system.
However, is it the silver bullet many had hoped for? A recent CEB study found that companies who have removed their ratings have seen employee engagement drop by around 6%, and that managers were unable to handle performance conversations effectively and explain reward decisions. Even before this report was published, there have been a lot of anecdotal stories emerging from early adopters indicating that challenges still remain, with issues being experienced by employees, managers and HR. Some organisations have reportedly tried to address some of these issues by creating ‘shadow’ or secret rankings, which are held by HR and are not shared with employees. It is hard to feel that this really represents progress.
The ratings-led approach is far from perfect, partly because of the ways in which they have been implemented, leading to time-intensive bureaucratic processes. Many schemes seem to have lost sight of their fundamental purpose and have become a frustrating exercise, with little (if any) positive evidence of behaviour change and performance improvement. But is their complete removal really the answer?
Performance ratings, when used effectively, can and have been fulfilling a number of roles that must not be overlooked, These include:
- Providing a degree of robustness and defensibility around pay and bonus decisions.
- Giving employees confidence around the consistency and equity of the pay review process and ensuring clarity on what they can receive in return for different levels of performance.
- Providing a clear picture on how staff performance is being valued by the organisation and a clear view on the progression opportunities that might be possible.
- Creating a clear framework for managers that can be used to manage people, assess their performance, and guide their development.
- Acting as a form of recognition for high performers and to help manage poor performers, either by improvement or by exiting them from the organisation.
The ambition of a rating-less performance management approach is admirable, however, the reality is that ratings can and do bring many advantages. Perhaps the investment required in making the transition away from ratings could be more effectively used on addressing and enhancing the benefits offered by ratings, as opposed to simply discarding them altogether. What is clear is that their removal can sometimes create a different set of issues and challenges, and that alone is likely to mean the transition away from ratings altogether may not be viable for the majority.
Stuart Hyland is people advisory services director at EY
